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Check out the U.D.N. network tutorials, by Lode Vandevenne, http://udn.epicgames.com/pub/Content/TerrainTutorial. There is a discussion about distance fog, page 31. Keep in mind that the tute was written based on an earlier build...build 927 so there might be changes.

Have a look under the fog properties when you selected level properties. just stuff around and see if it works. Im a learner and thats how i learne stuff.
Good Luck

You could add volumes then use distance fog but that would make it not visible to all areas. The other solution is to add the zone info for that area and set it to Fogzone then use lights to act as the fog.
Final and probably the best would be to use emitters and you would have to set these all up your self. Personally if you want that effect for having the fog in one area like that I suggest emitters since using the lights/fog zone will lag everyones pc.

I'm not sure this is still enabled, but in older builds of the Uengine and UED, you could put in fog volumes. Check the volumes icon on the left side toolbar of UED and see if there's a fog volume there. If not, then yes, you'll probably have to use distance fog.

I went back and noticed that it is not possible to use lights as fog in ued3.0. You will need distance fog or and emitter. I recommend an emitter.